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Ratio Analysis of S&S Air, Inc. Chris Guthrie was recently hired by S&S Air, Inc., to assist the company with its financial planning and to

Ratio Analysis of S&S Air, Inc. Chris Guthrie was recently hired by S&S Air, Inc., to assist the company with its financial planning and to evaluate the companys performance. Chris graduated from college five years ago with finance degree. He has been employed in the finance department of a Fortune 500 company since then. S&S Air was founded 10 years ago by friends Mark Sexton and Todd Story. The company has manufactured and sold light airplanes over this period, and the companys products have received high reviews for safety and reliability. The company has a niche market in that it sells primarily to individuals who own and fly their own airplanes. The company has two models; the Birdie, which sells for $53,000, and the Eagle, which sells for $78,000. Although the company manufactures aircraft, its operations are different from commercial aircraft companies. S&S Air builds aircraft to order. By using prefabricated parts, the company can complete the manufacture of an airplane in only five weeks. The company also receives a deposit on each order, as well as another partial payment before the order is complete. In contrast, a commercial airplane may take one and one-half to two years to manufacture once the order is placed. Mark and Todd have provided the following financial statements. Chris has gathered the industry ratios for the light airplane manufacturing industry.

USING the following data

please answer the following question

image text in transcribed

Calculated ratios are as follows:

Types of ratio

Formula

Computation

Ratio

Current Ratio

current assets/current liabilities

0.75

0.75

Quick ratio

(current assest-inventory)/current liabilities

0.39

0.39

Cash Ratio

cash+cash equivalents/ current liabilities

0.15

0.15

Total Assets Turnover

net sales/total assets

1.67

1.67

Inventory Turnover

cost of goods sold/average inventory

21.43

21.43

Receivables Turnover

net sales/average receivables

43.05

43.05

Total debt Ratio

outside debt/total debt

0.45

0.45

Debt Equity Ratio

outside debt/equity

0.82

0.82

Equity Multiplier

total debt/equity

1.82

1.82

Times Interest Earned

EBIT/interest

6.36

6.36

Cash Coverage Ratio

EBIT-Depreciation/interest

9.22

9.22

Profit Margin

net incomeet sales *100

3.36

3.36 %

Return on Assets

net income/total assets *100

5.60

5.60 %

Return on Equity

net income/equity *100

10.18

10.18 %

Compare the performance of S&S Air to the industry. For each ratio, comment on why it might be viewed as positive or negative relative to the industry. Suppose you create an inventory ratio calculated as inventory divided by current liabilities. How do you think S&S Airs ratio would compare to the industry average?

Ratio Analysis of S\&S Air, Inc. Ratio Analysis of S\&S Air, Inc

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